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Car loan denial after a purchase: What to know

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You find the perfect car, you negotiate a price, sign the papers and drive off with your new car. All is well, until the dealer calls you and says that the auto loan that you used has been denied and they want their car back. While it is rare, it is possible for a car loan to be denied after you thought it was already approved. Here’s a look at why that happens and what you can do. 

Why you can be denied a car loan after the purchase is complete 

When you get a car loan, a dealership will sometimes allow you to take delivery of the car even though your loan has not been fully approved. One of the most common ways that this can happen is if your employment situation has changed. Lenders want to make sure that you have enough income to repay the loan, and if they cannot verify your employment or another facet of your application, they may deny the loan. 

Dealerships 

While car loan modification scams do exist, it is also possible that the denial is legitimate. Start by reading all the papers you signed to see if there’s anything in them that says the deal has any contingencies — “contingent upon financing approval,” for example. 

Sometimes dealerships use a form called a rescission agreement to outline a broader array of contingencies. While there are many kinds of contingencies, financing contingencies are one of the most common. It makes sense when you think about it — the bank isn’t going to let you drive away with a new car if your loan ends up not being approved. 

Banks, credit unions and online lenders 

Banks, credit unions and other online lenders may not approve your car loan if they can’t verify the information that you provided on your application. This might be due to mistakes, typos or changes to your financial situation. One possible way this might happen is if you move or are no longer employed at the same location as you were at the time you applied for the loan. 

While this type of situation can be frustrating, it traces its roots to the timing around purchasing a car. Lenders and dealers both want the car buying process to be as quick as possible. Consumers are unlikely to buy a car or get a loan from someone who won’t give a loan approval for a few days. 

Most lenders will give a conditional approval after only a cursory examination of your financial details. And most dealers will allow you to take possession of the car with only this initial approval, as long as you sign paperwork allowing them to retake possession if you don’t get final loan approval. Over the next few days, the lender will look through the information on your application in more detail and if they can’t verify the information, they may deny your loan. 

What to do if you’re denied an auto loan after you buy the car 

It’s rare that you’ll be denied an auto loan after being initially approved unless some of your information has changed or there was a mistake. If that is the case, here are a few steps that you can take if you’re denied an auto loan after you’ve already bought your car: 

  • Provide updated information. Update the lender with your new job if you changed jobs and were denied because the lender couldn’t verify your employment. 
  • Check if the dealer can rework your loan. They may be able to work with another lender by giving it your updated information.  
  • Purchase the car another way. Use savings, credit cards or a personal loan to pay the dealer in full if possible. 
  • Return the car. If you can’t get a new loan and you signed a contract with contingencies, you msut return the car. 

How to better your auto loan approval chances 

Just like when you are applying for a home mortgage, it’s a good idea to not make any major financial changes before you fully close on your auto loan. Here are a few ways to improve your chances of being approved for an auto loan: 

  • Don’t make any large purchases. This can affect your credit score which may affect your car loan. 
  • Stay at your job. Lenders want to make sure that you have reliable income coming in and the ability to repay your loan. 
  • Don’t open new credit cards. New entries to your credit report can make lenders wonder if there is something else going on. 
  • Look at your credit report. Take a look at your credit report and make sure there are no errors or inaccuracies. 

The bottom line 

While it doesn’t happen very often, it is possible that you can be denied a car loan even after you take possession of the car. To minimize the chances of this happening, try not to make any major changes to your finances or credit until your loan is finalized, including not changing jobs, if possible. If you are denied, you’ll need to either work with the seller to find a new lender, pay for the car in full or return the car and go back to auto shopping. 

 

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Written by
Dan Miller
Points and Miles Expert Contributor
Dan Miller is a former contributing writer for Bankrate. Dan covered loans, home equity and debt management in his work.
Edited by
Auto loans editor